Repo Market Volatility and the U.S. Debt Ceiling
IMF Working Papers, June 27, 2025
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- Repo Market Volatility and the U.S. Debt Ceiling
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Bibliographic details
- Authors: Mai Dao, Brandon Joel Tan, Jing Zhou
- Published: June 27, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229015219.001
Overview
- Recurring debt ceiling standoffs cause political disruptions and economic costs.
- This paper quantifies one cost: spillovers to short-term funding markets stemming from debt ceiling mechanics.
- Methodology: high-frequency aggregate data and granular money market fund–specific data are used to identify effects of flows in and out of the Treasury General Account (TGA) on repo markets.
Key findings
- Flows in and out of the Treasury General Account triggered by the debt ceiling mechanism can:
- Create large swings in the repo spread.
- Distort the supply of repo funding for the Treasury market.
- Applying the paper’s estimates to the expected debt ceiling lift-off in summer 2025 implies that:
- The repo spread could fluctuate by 20-30 basis points around the lift-off date.
- A higher level of aggregate bank reserves and overnight reverse repo balance at the Fed can dampen the impact on funding spreads appreciably.
Quantitative estimates and projections
- Projected repo spread fluctuation around the expected lift-off: 20-30 basis points.
- Timing reference for the projection: summer 2025.
Policy implications and recommendations
- Maintain higher levels of aggregate bank reserves to reduce volatility in funding spreads induced by TGA flow variability.
- Maintain higher overnight reverse repo balances at the Fed to appreciably dampen the impact on funding spreads.
- Monitor flows into and out of the Treasury General Account as an important channel for short-term funding market stress during debt ceiling episodes.
Subject coverage and keywords
- Subjects: Asset and liability management; Collateral; Debt limits; Financial institutions; Financial markets; Financial services; Financial statements; Money markets; Public financial management (PFM); Repo rates.
- Keywords: Collateral; Debt Ceiling; debt ceiling mechanism; debt ceiling standoff; Debt limits; Financial statements; Global; Money markets; Repo; repo market volatility; Repo rates; Reserves; TGA balance; Treasury General Account.
IMF Working Papers — Mai Dao, Brandon Joel Tan, and Jing Zhou; June 27, 2025. Working Paper No. 2025/127, Pages: 30, Volume: 2025, Issue: 127, DOI: https://doi.org/10.5089/9798229015219.001
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